Predicting the New I-Bond Rates For November

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It’s time again to predict the upcoming I-Bond rate announcement for November, as the September CPI-U numbers were just announced. We did this successfully for both last October and April, using the information in my How To Predict I-Bond Savings Bond Rates post.

For those with existing I-Bonds, the variable rate is about 3.1% to add on to your fixed rate. Note that the rate on your bonds changes every six months from the date you bought it, so it might not change immediately in May.

Let’s look at our buying options:

Buying in October
You lock in the current fixed rate of 1.4%, and also the current (pitifully low) variable rate of 1.01%. for a total of 2.41% for the first six months. For the next six months after that, you will get ~3.12% for the variable rate, for a total of 4.52%. Not very impressive.

Treating an I-Bond as a potential 11-month CD
Definitely not a good idea, as even if you maximize your return and do the buy-late trick and hold it for 11 months for 9 months of interest, your return will be far under current market rates for a 1-year bank CD. This is even taking into account the possible state tax exemption advantage of certain states.

Buying in November
If you wait until the fixed rate is actually announced on November 1st and it is really high, which could make I-Bonds a possibly good long-term investment. Probably still not a very good short-term one.

I need to do another analysis of what to do with my current savings bond holdings next.

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Comments

I’m upgrading some of my 1% and 1.2% fixed rate I-bonds to these current 1.4% I-bonds before Nov. 1st, despite the first six months of pitiful interest.

Hey, I intended this money to be a future emergency fund (after 1 yr holding period) and hopefully it will just sit there anyway, tax-deferred. So why not upgrade to 1.4% now when I could be holding onto it for 30 more years?

But yeah, for short term, pre-Nov 1st I-bonds are not a good idea. My shorter-term money’s already in liquid savings or my T-bill ladder, so this doesn’t bother me.

Jonathan, what do you think of substituting TIPS for I-bonds, for a 5 year investment? The yield (equivalent to fixed rate) for the upcoming TIPS auction may be as high as 2.6%, blowing the expected I bond fixed rate away by about a 1% margin. With realistic inflation expectation over 5 years, even the fact that these are taxable shouldn’t make them worse than I bonds (unless perhaps for an extreme case where someone can cash out I bonds in a year with no tax at all).

As long as you’re OK with the differences with TIPS, then there’s nothing wrong at all. But if it’s for long-term, your tax-deferred I-bonds are likely to come out slightly ahead of reinvested TIPS in taxable after about 15-20 years or so.

Differences:

TIPS…………………………….I-bonds

1. pay tax every year……….1. tax-deferred
on both interest and the
adjusted principal

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Rates and terms set on third-party websites are subject to change without notice. Per FTC guidelines, MyMoneyBlog.com has financial relationships with the merchants mentioned. MyMoneyBlog.com is compensated if visitors click on any outbound links and generate sales for the said merchant.

The editorial content on this site is not provided by the companies whose products are featured. Any opinions, analyses, reviews or evaluations provided here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the Advertiser.